Advanta Capital Trust I's trust preferred securities rating was lowered to 'C' from 'Caa3'. The rating agency said the outlook for the senior unsecured rating is negative while the outlook for the trust preferred rating is stable.

The rating action is a reflection of Moody's view that Advanta's intrinsic credit quality has eroded because of continued asset quality deterioration, heightened funding and liquidity pressures, and the adverse effects of these factors on the card company's core profitability.

The agency said that the deterioration in Advanta's asset quality is greater than observed in other credit card issuers. Higher credit provisions as well as impairment of retained interests contributed to the firm reporting a first quarter pre-tax loss of $117 million, according to Moody's. Advanta has also breached cash trapping triggers in its securitization trust.

Moody's is concerned that further dips in credit loss experience can cause early amortization of the trust securities.

Moody's thinks that Advanta has enough liquidity to meet near-term requirements. However, the card issuer's reliance on wholesale deposits, lack of access to the ABS markets, as well as pressures on internal cash flow have all weakened its overall liquidity profile.

The firm's response to these conditions covers significant reductions in new business activity levels, which threaten its franchise value.

In terms of the trust preferred securities, the downgrade of the rating to 'C' reflects Advanta's decision to defer payment of dividends on these securities as well as the likelihood that the firm will continue to defer dividend payments for the foreseeable future. While deferred payments are cumulative, the rating shows a high degree of repayment uncertainty, or recovery in a default scenario, considering the company's weak financial condition.

The negative outlook on the senior unsecured rating reflects Moody's opinion that the factors that are driving the deterioration of Advanta's financial performance  deep recessionary conditions in the U.S. and the firm's concentrated exposures to areas of the country experiencing the most severe economic downturn, including California and Florida  are probably going to continue to affect the firm's performance over the course of 2009 and likely well into 2010. The stable outlook on the trust preferred securities reflects the 'C' rating, which is Moody's lowest rating.

The last rating action on Advanta was on Jan 30, which was when Moody's lowered the firm's ratings and assigned a negative outlook.

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